Memberships and Training Products

In July 2005, a company distributing memberships and training products sought a written opinion on whether a proposed multi-level marketing plan would raise concerns under the Competition Act. In August 2005, the Bureau provided a negative opinion for the following reasons:

• the operator failed to make reasonable and timely disclosure of the earnings of typical participants, as required by section 55(2) of the Act ;
• the plan provided participants who paid to join the plan with the right to receive compensation for recruiting other participants into the plan who had also paid to join. Prospective participants were entitled to participate at the introductory level for free or to pay a fee to participate at a higher level, but significant incentives existed for joining the plan at the higher levels. The Bureau considered this to be compensation related to recruitment and the plan was deemed to constitute a pyramid selling scheme as defined by section 55.1(1)(a) of the Act ;
• the plan also rewarded participants who recruited other participants through training bonuses. The Bureau considered these to be compensation related to recruitment, and the plan was deemed to constitute a pyramid selling scheme as defined by section 55.1(1)(a) of the Act ;
• the plan required prospective participants to pay for a specified number of products in order to participate in the plan at higher levels. The Bureau deemed this to constitute a prohibited pyramid selling scheme as defined by section 55.1(1)(b) of the Act since compensation should be based on product sales, not on required purchases; and
• the business plan did not contain any information relevant to the compensation that a typical participant could actually or would likely receive, as required by section 55(2) of the Act.